Public funds have been used to cover the 7 million yuan ($1 million) owed in back pay to employees of the collapsed Dongguan Weixu Shoe Company, a spokesman for the Chang'an town government in Guangdong said yesterday.

The press official, surnamed Chen, told China Daily that a series of measures has been introduced to deal with the aftermath of the closure of the Chang'an-based firm, which is owned by investors from Taiwan.

"When we learned on Saturday that the boss of the company had fled, we set up a task force to deal with workers' grievances and other matters arising from the incident," he said.

"The government has advanced about 7 million yuan to cover the wages of the 2,000-odd workers."

Chen said the government had been in contact with the boss of the firm and set a deadline of Tuesday for his return to discuss possible solutions.

"As he failed to return, the local government will take possession of the factory and auction off its equipment, as it is entitled to do so under the law," he said.

Luo Hongliang, one of the 2,000 people left jobless by the shoemaker's demise, said yesterday that although he is grateful to the government for paying his wages, he fears for his future.

"The welfare package was good; I got more than 2,000 yuan, which covered my salary and overtime pay," he said.

"My fear now is that although some other factories are recruiting, I will probably have to take a pay cut.

"I just can't understand how such a big factory could close all of a sudden," he said.

"We've all been talking about what might have happened; some people have said the company had cash flow problems," Luo said.

According to a report in yesterday's Nanfang Metropolis Daily, the firm had been experiencing financial difficulties following a period of rapid expansion.

The final straw came when one of its partners withdrew 50 million yuan from the firm, it said.

Huang Chunming, secretary-general of the Dongguan leather and footwear association, claimed the boss of the firm had also been accused of defrauding his suppliers, the report said without elaborating.